CDFI Financing of Supermarkets in Underserved Communities: A Case Study by Ira Goldstein, Cathy Califano, Lance Loethen and Edward Kako, TRF.

This report uses a unique data set from a regional supermarket chain to examine the impact of TRF’s program of support for the development of supermarkets in distressed neighborhoods in Philadelphia. The data enable them to demonstrate the additional costs for both start-up and ongoing operations of supermarkets in inner city neighborhoods and, therefore, the need for a subsidy program. They use employee records to show that part-time employees of the supermarkets (the overwhelming majority of all supermarket jobs are part time) live close to where they work, so that this economic development effort is indeed creating job opportunities for neighborhood residents. They also show that pay and benefits are comparable or superior to those at suburban supermarkets operated by the same chain. In addition, the authors use data on locations of all grocery stores to show that the new stores increase access to the high volume stores likely to have superior inventories and lower prices and that the stores are serving mainly nearby residents.

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Collaborators or Competitors? Examining the Relationship Between CDFIs and Mainstream Banks in Lending to Small Businesses in Underserved Markets by Geoff Smith, Sean Zielenbach, Jennifer Newon and Sarah Duda, The Woodstock Institute.

This report conducted case studies of three depository CDFIs and three CDFI loans funds that had a substantial volume of small business lending and examined the complex relationships that these CDFIs have with mainstream financial institutions (MFIs). Sometimes CDFIs and MFIs are in competition for small business customers, especially as consolidated national banks compete with CDFI credit unions and “de novo” banks are willing to take on risky small business loans. CDFIs must compete with technology-enabled, low-cost MFI products such as cash management services that replace the “high touch” services that were once the hallmark of CDFIs and small local banks. On the basis of the interviews they conducted, the authors found an important distinction between depository CDFIs, which are in direct competition with MFIs, and loan funds, which sometimes compete but more often rely on MFIs as sources of funding. Smith and Newon warn that bank consolidation could reduce sources of MFI funds and increase the conditions placed by MFIs, such as a seat on the CDFI’s board of directors or a commitment that customers be referred to the MFI once they have established a track record through CDFI financing. The authors recommend that CDFI loan funds work to develop non-bank sources of capital for small business lending.

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The Experience of New Hampshire Community Loan Fund in Mainstreaming of Acquisition Loans to Cooperative Manufactured Housing Communities by Michael Swack, University of New Hampshire, and Jolan Rivera, Southern New Hampshire University.

The hypothesis tested by the paper is that the New Hampshire Community Loan Fund’s program has attracted mainstream financial institutions to participate in these loans to Cooperative Manufactured Housing Communities at favorable terms, including willingness of the banks to fund a high percentage of the acquisition cost, interest rates that reflect a modest spread over the cost of funds, and other favorable loan terms. The authors’ original hope was to show that terms for loans in which banks participated improved over time, as the program demonstrated that such loans perform well. While data limitations meant that the authors were not able to show that loan terms had improved, interviews with banks suggested that loan terms were competitive and favorable and that loan officers valued the technical assistance provided by The Loan Fund, as well as its willingness to cover a portion of default risk for loans that have no down payment.

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